Best Practice Tips: Law Practice Exit Strategy—Internal or External
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I am the owner of a criminal defense practice in Bloomington, Illinois. I have been practicing for 40 years and I have just turned 65. I have one associate who has been with me for two years and two staff members. I would like to retire by the end of this year, and I would like to receive some value from my practice. Would I be better off selling my practice to my associate or another firm?
A. One year is a very short timeline for putting together an effective exit strategy. Criminal defense practices are often based on the reputation of the owner-practitioner and are more difficult to sell to other firms than other practices. I believe the best option for most firms is an internal exit strategy via sale of the practice to other attorneys working in the firm (non-equity partners or associates). However, this assumes that the firm has attorneys that have the skills and competencies to carry on the practice, and have an interest in owning a law firm. Often this is not the case. The other problem is that most associates don’t have any money, so any sale usually has to be paid out of future revenues after the owner retires. Other options include selling the practice to another law firm or merging with another firm. Another option is winding down the firm and joining another firm as an Of Counsel for a few years and then retiring from that firm.
Your associate has only been with the firm for two years. If he or she is straight out of law school, you will have to assess whether he or she has the skills, competencies, and desire to take over your firm. If he or she does, this might be your best option. If not, you will need to explore an external exit option—sale, merger, or Of Counsel arrangement. I have had clients who have had successful exits from their practices with each of these arrangements.
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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.